Executive Summary / Key Takeaways

• Pioneering Smart Water Solutions: Badger Meter is transforming water management through its comprehensive BlueEdge™ suite, integrating advanced hardware, communication, and AI-powered software to address critical global water challenges like aging infrastructure, non-revenue water, and labor shortages.
• Robust Financial Performance & Strategic Expansion: The company delivered strong Q2 2025 results with 10% sales growth and expanded gross margins, building on a 14% five-year revenue CAGR. The strategic SmartCover acquisition further extends its market reach into the high-growth sewer monitoring segment.
• Technological Moat & Operational Resilience: BMI's proprietary BEACON SaaS and ORION Cellular technologies offer quantifiable advantages in data processing, energy efficiency, and scalability, reinforcing its competitive position. The company demonstrates a proven ability to manage macroeconomic headwinds, including tariffs, through proactive operational and pricing strategies.
• Durable, Replacement-Driven Demand: The essential nature of water utility investments, where meters act as the "cash register," provides a resilient demand backdrop, supporting management's long-term high single-digit revenue growth outlook despite short-term project unevenness.
• Strong Financial Flexibility: A debt-free balance sheet and robust free cash flow generation enable continued strategic organic and inorganic investments, alongside a consistent dividend growth record, positioning BMI for sustained value creation.

The Foundation of Water Intelligence: A Century of Innovation

Badger Meter, Inc., founded in Milwaukee in 1905, has evolved from a traditional flow measurement manufacturer into a global leader in smart water management solutions. With approximately 95% of its net sales derived from water-related applications, BMI stands at the forefront of addressing the world's most pressing water challenges. These include aging infrastructure, increasing regulatory demands, a growing focus on climate change and sustainability, and persistent labor availability issues within utilities. The company's century-long history, marked by strategic operational expansions like its USMCA-compliant Nogales, Mexico facility established around 1980, has laid a resilient foundation for its current market position.

The industry is undergoing a significant digital transformation. Utilities are increasingly converting from manually read meters to advanced metering infrastructure (AMI) systems, with only about 40% of U.S. water meters currently converted. This shift is driven by the need for more frequent and diverse data collection to combat non-revenue water (NRW), which globally averages 30-35% of total water volume due to leaks and theft. BMI's strategic response to these trends is its "BlueEdge™" brand, a comprehensive suite of tailorable solutions that unifies its hardware, communication, software, and support services to deliver actionable insights across the entire water cycle.

BMI's core technological differentiation lies in its proprietary software and communication platforms. The BEACON Software as a Service (SaaS) suite, a secure, cloud-hosted platform, provides utilities with customizable dashboards and alerts, enabling real-time monitoring and consumer engagement. This technology offers 40% more granular data insights than some competitor offerings and boasts 30% faster data processing for real-time monitoring compared to equivalents from rivals like Xylem. Complementing this is the ORION branded family of radio endpoints, including ORION Cellular endpoints, which power a "Network as a Service" (NaaS) approach. This eliminates the need for utilities to install and maintain extensive infrastructure, enabling rapid deployment and enhancing network reliability. ORION Cellular provides 50% better scalability in remote areas than solutions from competitors like Itron.

Beyond software, BMI's ultrasonic water meters maintain high measurement accuracy over their lifespan, significantly reducing non-revenue water. This precision, coupled with the company's focus on continuous improvement and R&D, ensures its offerings remain at the cutting edge. BMI's direct sales model, which accounts for 75% of its utility revenue, fosters deep customer relationships, leading to 20% better customer engagement and enabling 15% faster innovation cycles compared to some competitors. This direct engagement provides invaluable insights into customer needs, allowing BMI to tailor solutions and accelerate product development.

Expanding the BlueEdge Ecosystem: Strategic Acquisitions and Operational Excellence

Badger Meter's strategic evolution has been significantly shaped by targeted acquisitions that expand its BlueEdge portfolio. On January 30, 2025, the company completed the acquisition of SmartCover Systems for $184 million, a move that strategically extends BMI's reach into the nascent, yet high-potential, sewer line and lift station monitoring market. Management views this segment as being "barely in the first inning" of adoption, with digital adoption rates currently less than 0.5%, signaling a substantial runway for growth. SmartCover's hardware-enabled software helps municipalities predict and prevent sewer overflows, optimize cleaning schedules, and manage harmful sewer gases, offering both environmental and financial benefits.

The integration of SmartCover is progressing as anticipated, with a primary focus on commercial synergies. By leveraging Badger Meter's extensive direct sales organization and long-standing customer relationships, the company aims to accelerate SmartCover's already strong organic revenue growth. While the acquisition is expected to be EPS dilutive in 2025 due to its initial higher Selling, Engineering, and Administration (SEA) expenses relative to its revenue scale and approximately $6 million to $7 million in annual intangible asset amortization, it is projected to become accretive in year two. This accretion will be driven by increased sales volume and the leveraging of BMI's broader operational capabilities, which are expected to lead to "well above line average EBITDA margins" for SmartCover over time.

This acquisition follows other strategic additions, including the Telog product line and Unity Remote Monitoring software (January 2024), and earlier deals for s::can, ATi, and Syrinix. These prior acquisitions bolstered BMI's capabilities in water quality monitoring, pressure management, and expanded its international footprint, allowing it to offer a more holistic suite of solutions.

Operationally, Badger Meter has demonstrated remarkable resilience in a turbulent macroeconomic environment. Despite facing tariff-related cost headwinds, including a nearly tenfold increase in bismuth prices due to Chinese export controls and volatile copper prices, the company has maintained strong gross margins. Its diversified manufacturing footprint, including the USMCA-compliant Nogales facility, and proactive supply chain management, coupled with targeted pricing actions, have allowed it to mitigate these pressures. Management asserts that the competitive playing field remains level in terms of tariff exposures and mitigation efforts, indicating that any cost increases are likely to be passed through the industry.

Financial Strength and Performance Momentum

Badger Meter's financial performance underscores its strategic effectiveness and operational discipline. For the second quarter ended June 30, 2025, total sales reached $238.1 million, a 10% increase year-over-year. Excluding the SmartCover acquisition, sales grew a solid 5%. The Utility Water product line, which constitutes approximately 88% of 2024 net sales, saw an 11.4% increase to $212.2 million in Q2 2025, driven by increased meter volumes, BEACON SaaS revenues, and the $10.6 million contribution from SmartCover. For the first six months of 2025, total sales were $460.3 million, with Utility Water sales up 13.6% to $409.5 million. The Flow Instrumentation product line, representing about 12% of 2024 net sales, remained largely flat in Q2 2025 at $25.9 million, with growth in water-focused end markets offset by declines in de-emphasized industrial segments.

Profitability metrics reflect the benefits of favorable product mix, particularly the growth of higher-margin SaaS revenues, and operational excellence initiatives. Gross margin for Q2 2025 expanded to 41.1% from 39.4% in the prior year quarter. For the six months ended June 30, 2025, gross margin was 42.0%, up from 39.4%. Operating earnings in Q2 2025 increased 8% year-over-year to $44.9 million, representing an operating margin of 18.8%. Selling, engineering, and administration (SEA) expenses increased to $52.9 million in Q2 2025, primarily due to the SmartCover acquisition's intangible asset amortization ($1.6 million) and growth-related personnel costs. Despite this, diluted earnings per share (EPS) for Q2 2025 rose 4% to $1.17, and for the first six months, EPS increased 17% to $2.47.

Looking at the full year 2024, Badger Meter achieved 18% sales growth, surpassing $800 million in revenue, demonstrating a robust 14% five-year top-line compound annual growth rate (CAGR). Software revenue alone exceeded $56 million, growing at a 28% CAGR over the past five years. The company's operating profit margins expanded by 450 basis points over the last five years, with EBITDA margins reaching a record 23% in 2024.

Badger Meter maintains a strong liquidity position and generates robust cash flow. Cash provided by operations for the first six months of 2025 was $77.6 million, a significant increase from $57.9 million in the prior year period. Free cash flow for Q2 2025 was $40.6 million, up 19% year-over-year.

While cash and cash equivalents decreased to $165.2 million from $295.3 million at the end of 2024 due to the SmartCover acquisition, the company remains debt-free and has $154.7 million in unused credit lines available. This financial flexibility supports ongoing operations, future capital expenditures, and strategic investments, all while maintaining a 32-year track record of consecutive annual dividend increases.

Competitive Dynamics and Strategic Differentiation

Badger Meter operates in a competitive landscape dominated by a few large players and several niche specialists. Its primary publicly traded rivals include Xylem (XYL), Roper Technologies (ROP) through its Neptune Technology Group, and Itron (ITRI). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, BMI holds an estimated 10% aggregate market share in its primary markets like water metering.

• Against Xylem: Xylem, with its Sensus brand, is a formidable competitor due to its larger scale, broader portfolio, and higher R&D investment (around 5% of revenue compared to BMI's 2-3%). Xylem's scale often translates to better supply chain efficiency and 10-15% lower operating costs per unit. However, BMI's technological edge, such as BEACON's 30% faster data processing and ORION's 20% greater energy efficiency, allows for higher pricing power in premium segments, potentially improving BMI's margins by 5-7%. BMI's TTM gross profit margin of 41.18% surpasses Xylem's 2024 gross margin of 38%, indicating BMI's operational efficiency within its focused portfolio.
• Against Roper Technologies: Roper, through Neptune, emphasizes an M&A-driven strategy and software-enabled products, leading to significant recurring revenue streams and higher net margins (Roper's 22% in 2024 vs. BMI's TTM 15.53%). BMI competes with its superior product performance; its meters offer 25% better accuracy in variable flow conditions, and BEACON provides 40% more granular data insights. While Roper's integrated software ecosystems may offer 20% lower operating costs for customers, BMI's precision and direct customer relationships foster strong loyalty.
• Against Itron: Itron is agile in emerging technologies like AI-driven analytics and has a higher R&D spend (around 6% of revenue). Itron's products can be 20% cheaper due to streamlined manufacturing. However, BMI differentiates with ORION's infrastructure-free solutions, offering 50% better scalability in remote areas, and 10% faster processing speeds for its flow instruments. BMI's TTM gross profit margin of 41.18% significantly outpaces Itron's 2024 gross margin of 34%, highlighting BMI's superior profitability per unit.

Badger Meter's competitive advantages, or "moats," are deeply rooted in its proprietary technology and unique distribution model. The BEACON and ORION platforms not only offer superior performance metrics but also translate into 5-7% higher pricing power and stronger customer loyalty, potentially boosting recurring revenue by 10%. The company's direct sales model ensures closer customer relationships, which aids in faster innovation cycles and customer retention. While BMI's smaller scale can result in 10-15% higher operating costs per unit compared to larger rivals, its focus on high-value, technology-driven solutions helps mitigate this. High regulatory barriers and significant R&D costs for proprietary technology also act as substantial barriers to entry, protecting BMI's market share against new entrants.

Outlook, Risks, and the Path Forward

Badger Meter maintains a confident long-term outlook, projecting high single-digit revenue growth over its strategic cycle. Management explicitly states that a "down year would be surprising," citing the inherent resilience of its replacement-driven utility business, which continued to grow even during the COVID-19 pandemic and periods of supply chain disruption. While the business can experience quarter-to-quarter unevenness due to project deployment schedules, such as the expected sequential sales decline in Q3 2025 for core sales due to AMI project wrap-ups, new projects are consistently in hand, and cancellations are not anticipated, only potential delays.

The company's normalized gross margin range remains at 38% to 40%, despite recent performance above this level. This conservative stance reflects the ongoing macroeconomic uncertainty, particularly concerning the "scale, scope, timing and duration" of potential tariffs. Management is actively implementing targeted pricing actions and leveraging its diversified manufacturing footprint to mitigate these cost pressures. The SmartCover acquisition is expected to temporarily elevate SEA as a percentage of sales in 2025 due to its initial operating profile and intangible asset amortization (estimated at $6 million to $7 million annually), and interest income will decline due to the use of cash for the acquisition. However, SmartCover is projected to be EPS accretive in year two.

Key risks include the evolving tariff landscape, which could impact input costs, and reliance on single suppliers for critical components like brass castings and certain electronic subassemblies. While the company has mitigation strategies in place, such as working closely with key suppliers and purchasing business interruption insurance, these dependencies could lead to higher material costs or delivery delays in the short term. Additionally, environmental contingencies related to past or present operations could result in material future costs.

Despite these challenges, Badger Meter's commitment to sustainability is evident in its 2024 Sustainability Report, which highlights exceeding greenhouse gas intensity reduction targets while achieving record financial results. This focus on environmental stewardship aligns with its core mission of protecting water resources and enhancing shareholder value.

Conclusion

Badger Meter stands as a compelling investment thesis, rooted in its century-long legacy of water technology innovation and its strategic pivot towards comprehensive smart water solutions. The company's BlueEdge™ portfolio, powered by differentiated technologies like BEACON SaaS and ORION Cellular, positions it as a critical partner for utilities grappling with aging infrastructure, regulatory demands, and the imperative for sustainable water management. These technological advantages, offering quantifiable benefits in efficiency and data insights, translate into a strong competitive moat and superior gross margins.

The strategic acquisition of SmartCover Systems further solidifies BMI's leadership in the rapidly expanding digital water market, particularly in the nascent sewer monitoring segment, promising long-term growth and enhanced profitability. Supported by a robust, replacement-driven demand environment and a disciplined operational approach to macroeconomic uncertainties, Badger Meter consistently generates strong cash flow and maintains a flexible, debt-free balance sheet. This financial strength enables continued investment in organic R&D and strategic inorganic growth, ensuring the company's sustained leadership in the evolving water industry and continued value creation for its shareholders.